July, 15 2005
Steel cos lose their shine as imports increase 34% in Q1
Imports of steel to India has registered a 34% increase in Q1 this year over the same period last year. Of the 6 lakh tonnes of steel imported between April-June, hot rolled (HR) coil constitute the lions share 5.3 lakh tonnes and this can be attributed to the competitive pricing by CIS countries like Ukraine, Russia and Iran as well. Initial estimates from the Joint Plant Committee under the steel ministry show exports have fallen, even as domestic consumption has fallen and inventories rise.
Sources saidsteel consumers had opted to import HR coil at low prices of $528 per tonne (Russia) and $533 per tonne (Ukraine). In fact, even China jumped in with a $520 per tonne price, compared to the global average of $590, $596 and $605 per tonne in April, May and June respectively.
While HR coil from Korea and Germany commanded $760 and $615 per tonne price, cheaper imports from CIS countries hit us badly, said a leading secondary producer.
The trend has brought steel producers into a huddle, pointing fingers at the low protection given by the government. When global steel prices were at a high the government effected a substantial reduction in customs duty from 30% to 5% in four tranches.
Now with prices falling by $150-$200 in just 3-4 months and domestic consumption not picking up, consumers prefer imports, said another producer. Markets like the US which have duties of over 50% with additional anti-dumping measures countervailing duties have led to diversion of exports from CIS countries to India, he added.
The negative growth in exports during Q1 has also given rise to speculation that if the trend continues, India could well turn into a net importer.
According to JPC estimates, exports stood at 9.3 lakh tonnes in Q4 down by 1.1% over the corresponding period last year. Last year, countrys steel imports stood at 20.5 lakh tonnes, while exports touched 43.8 lakh tonnes.
The Q1 data however reveals that domestic demand is just 76.7 lakh tonnes despite production of 83.7 lakh tonne of finished steel.There is an alarming increase in stock by 7 lakh tonnes over the 1.5 MT that existed at the end of March 04, points out an industry source.
End to steel slump in sight
The domestic steel industry, laid low by a recent slump in prices as global supplies outstrip demand, foresees a course reversal from September.
Early this month, firms slashed prices by 5-8 per cent following sluggish international demand and an inventory pile-up in some countries. It followed a reduction of Rs 500-2000 per tonne, made only weeks back.
While international prices of hot rolled coils are now in the region of $500 per tonne, experts are of the view that the sluggishness will persist in the short term.
A senior official from a leading private sector steel company said while firms have been successful in bringing down inventories in some markets, these continue to be high in other areas of the country. This may lead to the inference of more price cuts. On the other hand, lower production at some of the plants is expected to stem a dramatic decline in future, he added.
The official predicted a recovery in prices from September as stockists step up purchases. Also, demand tends to be stronger during these times in developed markets.
Tata Steel managing director B. Muthuraman is one of those betting on a September spike, but expects prices to stabilise at $450 per tonne after hardening for some time.
Muthuraman, however, ruled out any revision in prices under long-term contracts.
There will be no change in these prices as we need to keep them at a level at which the company can sell, he said on the sidelines of a conference on the steel industry here today. Asked about the demand for steel, he said it was likely to grow 4.5-5 per cent globally and 7-8 per cent in India.The domestic steel industry, laid low by a recent slump in prices as global supplies outstrip demand, foresees a course reversal from September.
Early this month, firms slashed prices by 5-8 per cent following sluggish international demand and an inventory pile-up in some countries. It followed a reduction of Rs 500-2000 per tonne, made only weeks back.
While international prices of hot rolled coils are now in the region of $500 per tonne, experts are of the view that the sluggishness will persist in the short term.
A senior official from a leading private sector steel company said while firms have been successful in bringing down inventories in some markets, these continue to be high in other areas of the country. This may lead to the inference of more price cuts. On the other hand, lower production at some of the plants is expected to stem a dramatic decline in future, he added.
The official predicted a recovery in prices from September as stockists step up purchases. Also, demand tends to be stronger during these times in developed markets.
Tata Steel managing director B. Muthuraman is one of those betting on a September spike, but expects prices to stabilise at $450 per tonne after hardening for some time.
Muthuraman, however, ruled out any revision in prices under long-term contracts.
There will be no change in these prices as we need to keep them at a level at which the company can sell, he said on the sidelines of a conference on the steel industry here today. Asked about the demand for steel, he said it was likely to grow 4.5-5 per cent globally and 7-8 per cent in India.
Steel prices to stabilise in the long-term
A slight increase in steel prices can be expected in the next couple of months. However, on a long-term basis prices would stabilise. A correction in steel prices is on now, as the last few months have seen steel purchases in the market reduce.
B Muthuraman, MD, Tisco believes that, a slight increase in the prices of steel is expected in the next couple of months, but on a long term basis prices would stabilise.
He adds that steel prices depend on the demand and supply, and prices should be in a range that allow steel to sell with ease.
Muthuraman says, "There will be no change in the long-term price contract and there is no need to do so because international long-term contracts are also placed at the current prices."
He further says that, steel prices at the commercial end are often speculative and that is related to the psychology of the buyers and sellers. Since the past 2-3 months there has been less buying in the market due to the existance of higher amounts of stocks, therefore a price correction is taking place now, he says.
According to Muthuraman, the prices of steel that were prevalent a year ago were a bit high due to which they have come down now.
He explains that prices of steel have come down due to de-stocking of excess stocks that existed in the market, and not due to any economic slow down around the world. The prices of steel have bounced back and stabilised due to this in the last 2-3 weeks.
OMC to supply ore for steel plants
The state government has directed the Orissa Mining Corporation (OMC) to supply iron ore to steel plant projects, which are ready to start production.
The OMC has also been asked to supply raw materials to the sponge iron plants and sell the surplus ore in open market, steel & mines minister, Mr Padmanav Behera told reporters here today.
He said the Corporation had also been instructed to step up its iron ore mining capacity to 5 million tonnes as against the last years 2 million tonnes, to meet the growing demands of the steel plant projects.
OMC has presently 14 iron ore mines. But many of these mines are in defunct condition, official sources said. The matter was discussed at a meeting, chaired by chief minister, Mr Naveen Patnaik to review the raw material linkage to the proposed 17 steel plants of the total 37 projects including the Posco plant.
Of the 17 proposed small and medium steel plant projects under review, work was under progress in 15 projects. It was revealed from the review that the promoters had invested more than 25 per cent of their project cost and thus had been eligible for recommendation for mining lease in at least 4 steel plant projects. However, the government was constrained in recommending their cases to the central government for mines lease as these industries had not yet submitted their financial closure details.
Names of these industries are Aarti Steels, Scaw Industries, Bhusan Steels and SMC. Aarti Steels is setting up a 0.5 million ton steel plant near Athgarh, while a construction of 1.2 million ton steel plant by Bhusan Steels is under progress in Jharsuguda. Scaw Industries and SMC are establishing 0.25 million ton plants each near Dhenkanal and Jharsuguda respectively.
Two projects to be set up by Deo Mines & Minerals and Monnet Ispat Limited have not taken off at all.
While the project of Deo Mines & Minerals could not progress due to environmental problem, Monnet Ispat Limited did show interest to set up the project in Orissa.
In this context, the government asked the industries to expedite their projects and warned that the MoU signed with them would be cancelled. Review of the rest steel plant projects would be held on July 20, official sources said.
Mittal Buys Stake in China's Steel
Global steel giant Mittal Steel Co. has bought its first stake in China's steel industry, purchasing a 37 percent share of a state-owned steel mill, a news report said Friday.
The government on Thursday approved the US$337 million purchase of shares in Valin Iron and Steel Co. Ltd. in the central province of Hunan, the official Xinhua News Agency said.
China is one of the world's biggest steel consumers but foreign investment in its domestic industry is still small.
Mittal Steel, based in the Netherlands, is the world's largest steel producer.
Tata Steel rules out price revision
Tata Steel Ltd on Thursday ruled out any revision in prices for its steel products under long-term contracts but said the global prices are likely to rise slightly in the coming months.
"There will be no change in the long-term prices as we need to keep them at a level at which the company can sell", company's managing director B Muthuraman told the media on the sidelines of workshop on use of steel in the construction sector here on Thursday.
Asked about the demand for steel, he said it was likely to grow at 4.5-5 per cent globally and seven-eight per cent in India.
About the trend in global steel prices, he said there should be a slight increase in the next couple of months but the prices should stabilise around $450 per tonne.
On the expansion plans of the company, he said the work at Jamshedpur plant to increase its production capacity to 7.4 million tonnes should be completed by 2008.
The feasibility study on the Bangladesh project has been completed and the company was exploring several options in Pakistan and Iran, he added.
New steel policy out next week
CHINA, the worlds No. 1 steel manufacturer and consumer, is expected to change the rules governing foreign investment in its fast-growing steel sector.
The nation will forbid foreign steel producers from taking controlling stakes in domestic steel companies, Qi Xiangdong, deputy secretary-general of China Iron and Steel Association, said yesterday.
Foreign steel producers, if they want to invest in Chinas steel sector, must have independent intellectual property in steel-making technologies and have an annual output of 10 million tonnes, Qi told China Daily.
These restrictions will be included in a national steel industry policy, which is to be released next week, he said.
They come as foreign steel giants are speeding up mergers and acquisitions in Chinas steel industry, and even seeking majority stakes in domestic steel mills.
Mittal, the worlds biggest steel group, will buy a 36.67% stake in Valin Iron and Steel Co Ltd a Shanghai-listed steel maker in Central Chinas Hunan Province, the Chinese company said last month.
The figure will be less than it previously intended.
In January, Mittal and Valins state-owned parent agreed to each having a 37.17% stake in the firm.
Arcelor, the worlds No 2 steel company, has also been seeking a controlling stake in Laiwu Iron and Steel Co Ltd a Shanghai-listed steel maker in East Chinas Shandong province.
Both Valin and Laiwu are among Chinas top 20 steel makers.
Analysts said the expected steel policy indicated that the Chinese government was unwilling to see foreign steel giants control the steel sector.
The steel sector is one of the backbones of Chinas steadily growing
economy. Therefore, it should not be controlled by foreigners, said Tian Shuhua from China Galaxy Securities Co Ltd.
However, Tian said foreign steel giants still had many opportunities because Chinas steel sector and market would continue to grow rapidly, although they would be banned from having majority stakes in domestic steel mills.
Foreign steel giants could also accelerate technical collaborations with Chinese partners, he added.
China produced 272.8 million tonnes of steel last year, up by 22.7% from 2003.
The steel association predicted earlier that the nations steel output would reach 300 million tonnes this year.
Qi said the expected policy would boost associations between Chinese steel makers in different regions through cross-shareholding and other measures to form bigger groups that would improve the fragmented sectors competitiveness.
Zhou Xizeng, from CITIC Securities Co Ltd, said, The new steel policy also indicates that the government hopes to put Chinas steel sector in order, instead of letting foreign giants do it.
There were 871 steel producers in China by the end of last year, of which only 15 had an annual crude steel output of more than five million tonnes.
China's steel industry set for tough times
As prices of steel products in China have fallen since March, experts expect the year 2005 to be the start of a temporary low ebb for the steel industry, mainly due to the state's macroeconomic cooling measures and market forces.
Song Jijun, vice-chairman of the Hebei Iron and Steel Association, believes that the macroeconomic policy, which is determined by GDP and investment growth rate, is the key to the pending slowdown of the steel industry.
Excessive fixed assets investment, manifested by GDP growth of 9.5% in the first quarter on 25.7% growth of fixed capital investment in the first four months, has induced such macroeconomic control policies as prohibiting the steel industry from blindly expanding production capacity; calling off export rebates for billet, steel ingot and pig iron; and passing regulations on the development of the steel industry. The macroeconomic policies on steel industry will lead to more pressures on the domestic market.
Some steel operators believe that the production capacity of steel industry is expected to face an oversupply. As against 2002 and 2003, in which the steel market enjoyed more demand, the year 2004 saw an increase of 22.69% in steel production to 272.8 million tons. The increase will top 50 million tons in 2005, as marked by a net increase of 22.39% or 15 million tons in the first quarter. It is also anticipated that 2006 will add another 50 million tons of production capacity. The trend of steel oversupply will lead to more supplies and narrowing profits.
In addition, the supply/demand relationships between steel industry and downstream industries are experiencing dramatic change. According to statistics, the first four months of this year witnessed the production of 28.0858 million tons of crude steel, up 25.4% year on year, and 29.5309 million tons of steel products, up 23.7% year on year. But the consumption of steel in downstream industries grew slowly; the automotive industry, a main plate consumer, only had a 1.48% output growth in the corresponding period.
International and domestic economic environments also contribute to the fluctuating trend of the domestic steel industry. China's economic growth is expected to slow down in the three years from 2005 to 2007, following a cycle of rapid growth from 7.5% in 2001, to 8% in 2002, 9.3% in 2003 and 9.5% in 2004.
Thai steel giant plans $1 billion project
Thailands largest wire producer said it is considering investing US$1 billion in a steel refining and rolling plant in the central province of Quang Ngais Dung Quat Industrial Zone.
Tycoons Worldwide Group (Thailand), a subsidiary of the Taiwan-based Tycoons Group Enterprise, the worlds leading screw manufacturer, said it will build a furnace steel refinery plant and a heatproof rolling plant with an annual capacity of 5 million tonnes of billet.
If granted a license, the project will break ground in the middle of next year, and its first stage will be completed in 2009, the second stage in 2012, and the third stage in 2015, the Rayong-based firm said.
Investment capital for the project will be divided into three stages. Equal amounts of $300 million will be invested for the first and second stages, and the remaining amount in the third stage.
Tycoons World Group is currently implementing cool rolling steel plant project in My Xuan A2 Industrial Zone in Tan Thanh District of Ba Ria - Vung Tau.
The company recently announced disappointing first quarter earnings with net profits of 191 million baht ($4.75 million), a fall of 34 per cent quarter-on-quarter and 15 per cent year-on-year.
The company attributes its poor earnings growth to a lower margin spread between sale prices and billet costs, higher selling and administrative costs and higher interest expenses.
Viet Nam consumed 1.14 million tonnes of construction steel in the first five months of the year, up 34 per cent over the corresponding period last year due to emerging demand, the Viet Nam Steel Association (VSA) reported.
With the countrys 25 leading steel producers as members, VSA previously forecasted the demand of construction-grade steel to increase to 3.4 million tonnes this year, which would mark a 20 per cent increase from 2004. The forecasted increase accounted for the large number of projects slated for 2005.
Viet Nam produced 2.8 million tonnes of construction steel in 20042 per cent under its target, as input prices varied and the industry relied too heavily on steel ingot imports.
Efforts to bring steel market into balance will take "2-3 months"
Efforts among steelmakers in the US to combat a glut in supply will take between two or three months to bring the market into balance, investment bank Merrill Lynch said in a report Wednesday.
Merrill Lynch noted that prices for hot-rolled products averaged $593/mt in the first half 2005 but current prices have sunk to $480/mt. "Excess service centre inventories in the US are the main contributing factor behind the decline in prices," the report's authors added. After weathering a major downturn steel demand earlier in the decade, US steel producers have ramped up output in the last two years to meet surging demand in the US and China, which until very recently had a shortage of capacity in some value-added areas of steelmaking. And Merrill Lynch suggested that Chinese demand and supply should be put into perspective.
China to have industrial policy on iron, steel
The first state policy on China's iron and steel sector will be issued this week, an industrial insider said here Wednesday.
Qi Xiangdong, deputy secretary-general of the China Iron and Steel Association, who was briefed by the State Development and Reform Commission (SDRC), released the news in an interview with the China Securities Daily.
"It will be the country's first state policy on the iron and steel sector in real sense because it was drafted by the SDRC and approved by the State Council (China's Cabinet)," Qi said.
Previously, only auto industry had its industrial policy drafted by the SDRC and approved by the State Council.
Wang Lijuan, senior engineer with the China Metallurgical Industry Planning and Research Institute and a member of the drafting committee, said that the policy has come at a critical time when the whole sector is being plagued by problems like overheated investment, improper industrial structure, repeated construction, poor quality and worsening environmental pollution.
"Although China ranks first in the production, consumption and net import of iron and steel products, China is far from an iron-steel power," Wang said.
Strained by numerous structural problems, China's iron and steel industry can barely realize sustained development if its steel output exceeds 300 million tons."Pressure from limited resources and environmental protection will definitely intensify," she said.
The output of China's crude steel reached 272 million tons lastyear, making up 25.8 percent of the world's total.
Piecemeal information from industrial insiders reveals that the new policy has set clear-cut principles on industrial development, especially long-term objectives,technical policies,industrial restructuring, corporate governance, market access and trade.
"China will tighten its control of the production capacity of the iron and steel industry to rein in the total output. Conglomerates will assume a bigger role amidst a new round of industrial restructuring," Wang said.
The aggregated steel output of China's ten biggest players is expected to make up 50 percent of the country's total by 2010, and over 70 percent by 2020.
No more conglomerates will be approved in principle because thepolicy has actually raised the industrial thresholds and imposed tighter control on market access.
"For instance," Wang acknowledged, "all new projects, to get official approval, will have to meet both local and state environmental protection criteria and have a coal consumption of less than 700 kilograms and water consumption of less than six tons for every ton of steel."
Given that nearly 200 million tons of steel products in China are manufactured by small and energy-consuming companies who have no way of meeting the new industrial policy, experts claim a massive industrial restructuring will result.
In terms of capital access, another sensitive issue that concerns most industrial insiders,China is seemingly showing unprecedented open-mindedness by embracing all kinds of capital: domestic or overseas, public or private, so long as investors promise to abide by the industrial policy.
Considering the big appetite of the iron and steel sector for raw materials like iron ore and coal, the new policy is said to encourage iron-steel companies to locate themselves in ports, especially good deep-water ports.
As the proportion of imported iron ore is expected to grow fromthe present 40 percent to 65 percent in the future, experts said that moving factories to port cities will reduce transportation costs and sharpen the competitive capability of Chinese iron and steel products.
"The best scenario projected by the policy is the formation of rational industrial distribution by 2010, which, complete with efficient supply chains and convenient transportation routes, will allow the balanced development of market demand and the natural environment," Wang said.
Calling the next 10 years "a golden decade" for China's iron and steel industry, experts agree that it will have continuous expansion as the market demand for iron and steel products, spurred by fast urbanization and industrialization, will remain high.
"A slowdown will probably come only after the country's per capita gross domestic product hits 3,500 to 6,000 US dollars and the contribution of a third industry exceeds 50 percent. Before that, the sector will just go full steam ahead," Wang said.
